Drive to find diverse fuels likely to be bumpy trip

Experts back president's goal, but question the ability to meet 6-year timetable

DAVID IVANOVICH, Copyright 2006 Houston Chronicle Washington Bureau

Published 6:30 am, Thursday, February 2, 2006

WASHINGTON - President Bush wants to remake the nation's fuel supply.

No small task that.

With the warning "America is addicted to oil," Bush used his State of the Union address Tuesday to launch a new strategy to replace 30 percent of the nation's gas supply with ethanol made from farm waste.

Few would question his objective: to reduce the nation's growing dependence on the often-volatile regimes that sit atop the world's largest oil reserves.

Whether the nation can really meet his timetable — new technologies ready to compete in the marketplace within six years — remains very much an open question.

"We're still several years off," said Todd Alexander, a partner with Chadbourne & Parke in Houston who specializes in development and financing of plants to make ethanol and biodiesel fuel. "Whether it's three years off or 20 years off, it just depends on who you are speaking to."

Indeed, Alexander thinks "it will be a major challenge to achieve it in six years."

Consider:

•Companies first must demonstrate they can convert the cellulose in wood chips, corn stalks and switchgrass into fuel on a commercial scale, experts say.
•The industry also will have to develop a distribution system to handle all this new ethanol.
•Automakers will have to build enough cars that can run on either regular gasoline or an 85 percent ethanol blend, while the nation's farmers and forestry companies will need to rethink their businesses.
"This is not a simple thing to do," said Dan Sperling, director of the Institute of Transportation Studies at the University of California-Davis.

Still, companies such as Cargill, Dow and DuPont are exploring the opportunities "cellulosic ethanol" might offer, while the Canadian firm Logen, with funding from Royal Dutch Shell, hopes to begin construction on a new plant next year.

Goal: Reduce oil imports

Bush's ethanol proposal is part of a broader strategy to prod development of hybrid vehicles, hydrogen-powered fuel cells and other technologies to reduce the nation's dependence on Middle Eastern oil by more than 75 percent by 2025.

The Persian Gulf states shipped about 2.3 million barrels a day of crude to the United States during the first 11 months of 2005, accounting for 17 percent of the nation's oil imports, according to the U.S. Energy Information Administration.

New technologies, administration officials say, could best the 75 percent figure and trim those Persian Gulf imports by about 5.3 million barrels a day, Hubbard said.

Generous subsidy

Since domestic oil supplies are limited, administration officials are looking to "homegrown" ethanol.

Ethanol makers produce 4 billion gallons a year, about 3 percent of the fuel supply. The energy bill Bush signed into law last year envisions nearly doubling ethanol use.

But ethanol enjoys a generous federal subsidy — 51 cents a gallon. With today's high crude and gasoline prices, ethanol would be competitive even without that subsidy, said Reid Detchon, executive director of the Energy Future Coalition, a group interested in reducing the nation's dependence on foreign oil.

If the technology can be developed, plant material such as switchgrass and corn stalks would be a cheaper feedstock than corn. And since corn is also needed for both the human and livestock food supply, the amount of ethanol American companies can produce using corn is limited, Hubbard said.

Using wheat stalks, corn leaves and other agricultural waste could expand potential ethanol production to a whopping 60 billion gallons, Hubbard said.

This concept, though, has its critics.

Researchers at Cornell University and the University of California, Berkeley have argued the amount of fossil energy required to produce ethanol from corn, switchgrass or wood biomass is greater than these fuels' energy output.

The Bush administration has proposed spending $150 million in the federal fiscal year 2007 on the cellulosic ethanol program, a relatively small sum by Washington standards.

Ottawa-based Logen is hoping to get a piece of that government largess. The small, privately held firm, which has spent years developing the technology, is looking for a loan guarantee that would help pave the way for construction of a new, $350 million plant, possibly in southeastern Idaho, said Jeff Passmore, the company's executive vice president.

Since the plant would be the first of its kind, its cost to produce ethanol would be higher than other ethanol plants. But Passmore argues that with ethanol prices tracking the high gasoline prices, the plant could still be highly profitable.

How will all of this new focus on ethanol affect Houston's oil producers?

"Realistically, the demand for oil around the world is unlikely to be substantially affected by this — certainly in the next 10 to 15 years," Detchon said.

He added: "If this takes off and is a good business, many of the oil companies have ample resources to buy their way in."

And besides, Detchon noted, East Texas has the perfect climate for switchgrass.